Property Damage/Collision Coverage Claim Payments: Am I Required to Spend My Claim Payment on Repairing My Car?

An insurance company’s duty to their insureds and to those damaged by their insureds is to make them “whole”.  Simply stated, this means that they have the obligation to either fix the damages or pay out the money it would cost to do so, to put the damaged party back into the position they were in had the accident not occurred.

Property Damage Claim – a personal tale
My son’s car was rear-ended when he was exiting the freeway a couple of months ago.  There was very little noticeable damage to his black Honda Civic Coupe, but there was a small scratch on his bumper.  He got a repair estimate from two different body shops and sent them to the at-fault driver to make a claim on her insurance.  The estimates were for $1100 and $1240.  The insurance adjuster did ask about sending the claim check directly to the body shop (the $1100 one, of course), but my son (on my advice) told her to send the check to him, instead.  She did, and the insurance claim was settled.  My son bought some black touch-up paint and repaired the scratch himself.  The remaining $1,094 went into his college fund!

So, the short answer to the second half of the question posed is no, you do not have to get your car repaired if you are making a claim against someone else’s policy for property damage.  You can take the money and run.  If, however, you are making a claim under the collision coverage on your own policy, it will depend on the wording of the policy.

Collision Coverage Claim
Under the collision coverage section, most policies do not specify whether or not you have to have your car repaired, or to whom the claim check is to be written.  In fact, many policies will state that they do not condition payment for damages on repair of the vehicle.  Plus, they cannot require you to use a specific auto body shop should you decide to have your car repaired.  They can require an inspection either by a repair shop or by an adjuster and a repair estimate to be written, so they have something on which to base their payment to you.  But, unless the policy states otherwise, you can pocket the dough and live with the dent. 

Sometimes this makes sense.  If, for example, you don’t plan on selling the car, but instead plan to drive it into the ground, (which many people do these days, especially with some of the Japanese cars that seem to last forever), and the dent isn’t too unsightly and something you can definitely put up with, then why not keep the money?  If, however, you are planning to sell or trade the vehicle at some point, unless you (or a friend) know how to do the repair work yourself and can do a decent job, better leave it to the professionals and turn that money over to a body shop.

One other matter could come into play here.  If your car was totaled, meaning it would cost more to repair it than to replace it, you have the option to keep the salvage.  The insurance company will deduct the salvage value from their payment to you if you do so.  You can sell the salvage yourself and keep the money.  Some people, however, use the settlement money to go ahead and repair the car.  Should you do this, the title will show that it is a salvaged vehicle and you will not get away with passing it off as simply a used car even after it is fixed.  It will become difficult to trade or sell, and I strongly advise against it.  It is better to give the salvage to the insurance company, get all the money you can from them for the actual cash value of the car, and then use that as a down payment on another vehicle.